[REN #904] U.S. Economy: Reopening Stifled by Unemployment Bonus

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U.S. Economy: Reopening Stifled by Unemployment Bonus, Real Esate News for Investors Podcast Episode #904

States across the nation are giving businesses the green light to reopen, but where are the employees? It seems that a very generous unemployment bonus, authorized by the CARES Act, may be contributing to a decision to remain unemployed. The government is handing out a $600-a-week bonus on top of regular unemployment benefits. Now, many are getting more from unemployment than they did when they were working.

The fact that people are getting this bonus has probably contributed to high rent collection numbers. People have had the money they need to keep up with their obligations. That’s the whole point of the extra money, to keep people as close to financially whole as possible.

But states are starting to lift stay-at-home orders, and the situation is making it difficult for companies to rehire their employees and reopen. Employees may be worried that it isn’t safe enough to go back yet, but getting paid more money to stay home isn’t a bad deal either. Going back to work represents a health risk, and a cut in pay.

Another government program authorized by the CARES Act may also be compromised by employees refusing to go back to work. The Paycheck Protection Program helps keep people employed by giving companies a loan that is forgivable if they keep at least 75% of their employees on the payroll. That has become difficult for some companies if employees are making more from unemployment benefits, and refusing to come back to work.

Getting Paid More to Stay Home

A preschool teacher in Portland, Oregon, told NPR that she’s been out of work for more than two months and is dreading the idea of going back. (1) She loves her job, but she’s now afraid that the preschool is a germ factory. She told NPR, “It’s terrible to say, but we’re all doing better now. It’s hard to think about going back to work in this pandemic and getting paid less than we are right now when we’re safe and at home in the quarantine.”

The situation could get worse as more and more businesses reopen. The $600-a-week bonus is set to last for another two months, through July. In normal circumstances, a person who refuses work would lose their benefits. It’s not clear if that will happen in this case, especially if a person says that he or she is worried about their health if they return to work.

A restaurant employee in Kentucky told NPR, “I don’t feel like it’s over yet.” He wants to wait to see if there’s a spike in coronavirus cases, before he considers a return to his job. The restaurant has been patient with employees who are worried about germs, but the unemployment bonus is probably a big factor in their decisions, and one that brings up a question of fairness.

In some cases, low-income workers have worked throughout the pandemic in positions that expose them to the public, and they earn less money than people who are essentially paid to stay home. Economist Peter Ganong told NPR, “If you’re a janitor and you work at a hospital, you’re facing increased risk at your job and likely have not received a pay raise. But if you’re a janitor and you work at a school that’s shut down, then you actually get a 50% pay raise from claiming unemployment benefits.”

Question of Fairness

The question of fairness is becoming more important as Congress considers another stimulus bill that could extend the unemployment bonus. House Democrats already passed that bill, with an extension that goes through January. The bill, called the Heroes Act, is now in the Senate.

If you’re wondering why the government is giving people more money than they were making at their jobs, it’s all a matter of working quickly to get that money into the hands of those who need it. Lawmakers decided to pay people an extra $600-a-week based on an average weekly wage of $970, minus the average unemployment benefit of around $370. Adding $600 a week to the average unemployment benefit was an easy way to give people 100% of their income, more or less. And for many people, it’s more.

In some states, the number of people earning more from unemployment than their jobs is more exaggerated than in other states. ABC News says that half of the people in states like Arizona, Kansas, and Montana are currently making more from their unemployment checks. (2)

The sheer size of the program made it impossible to tailor the amount that each person would get so the result is that many people are getting more than maybe they should be getting. It was a short-term solution that could grow more troublesome as the nation tries to get the economy back on track. And an even bigger problem if the same program is extended through January of next year… although the rent will get paid. Is that the silver lining? For landlords, it could be… but it might not be great for the economy.

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Links:

(1) NPR Report

(2) ABC News Article

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